Philip Maddocks: Goldman grills senators about their role in Goldman’s current crisis

Friday

Apr 30, 2010 at 12:01 AMApr 30, 2010 at 12:28 PM

In a tense and often combative hearing Thursday that lasted more than 10 hours, Goldman Sachs executives grilled senators about their role in orchestrating the crisis the company finds itself in.

Philip Maddocks

In a tense and often combative hearing Thursday that lasted more than 10 hours, Goldman Sachs executives grilled senators about their role in orchestrating the crisis the company finds itself in.

“The idea that Washington is trying to come out of this thing looking just fine, thank you, is something that just grates on the people in this room,” said Daniel L. Sparks, a former partner and head of the mortgage trading department in the Goldman Sachs Group. “They think you didn’t just wake up to this stuff because of our bad luck. They think you guys are just trying to game this thing real well.”

In sometimes defensive and frequently defiant testimony, lawmakers insisted they had done nothing to mislead the banking giant or its clients.

Sen. John Ensign, Republican of Nevada, who was among those from the Senate Permanent Subcommittee on Investigations called to testify at Goldman’s New York office, defended his and the government’s role in questioning the honesty and legality of some of the bank’s investment dealings.

In his opening remarks to the group of Goldman Sachs executives, Mr. Ensign declared: “I deny, categorically, Goldman’s allegation that we misinformed or let down the company. And I will defend myself in private boardrooms across Wall Street against this false claim.”

“We have done nothing wrong,” she said. “These exotic legal tools we deal in – known as financial reform regulations – are perfectly legal, even on Goldman. By trying to weaken these, you are putting our – and your - robust economy at risk.”

David A. Viniar, executive vice president and chief financial officer at Goldman, said the executives wanted to know what went wrong in Washington and “how we can fix it,” adding that bankers feel that Washington contributed to the Goldman crisis.

“People on the 32nd floor feel like you are betting with our money and our people’s future,” he said. “Instead of Washington and Wall Street, it looks like Las Vegas.”

The tightness between Wall Street and Washington was a recurring theme at Thursday’s hearing, with executives occasionally pointing out how much Washington — and indeed the senators — had profited as the fortunes of Goldman went up and down.

“A lot of you who are in this room wouldn’t be in this room if it hadn’t been for this company,” said Craig W. Broderick, the chief risk officer at Goldman.

The session at Goldman’s offices began with opening remarks from the company’s chairman and chief executive, Lloyd C. Blankfein, in which he said the hearing would attempt to illuminate the role the government played in the current crisis for Goldman. The public galleries at the banking behemoth’s hearing room, accommodating roughly 100 financial executives, were full and included four people dressed in mock Goldman e-mail documents who jeered at the Senate members.

“How do you live with yourself, J. En?” one shouted as Mr. Ensign was ushered into the chamber for his testimony.

A milieu for conflict was established from the start, with Mr. Blankfein saying the questioning would focus on the role of lawmakers in the crisis facing Goldman, and particularly on the activities of “certain senators.”

At one point Sen. Carl Levin, Democrat of Michigan and the chairman of the Senate Permanent Subcommittee on Investigations, prompted a collective gasp when Mr. Blankfein asked him how he felt when he learned that Goldman employees had used vulgar terms to describe the poor quality of certain Goldman deals. Mr. Levin replied, “I think that’s very #$%^ unfortunate to have on &*^# e-mail.”

Mr. Blankfein then berated Mr. Levin for not using the same vulgar terms used in the e-mails by Goldman employees, saying that he was appalled that a senator would attempt to correct the vulgarities of a Goldman employee. Mr. Levin later apologized.

Mr. Blankfein pressed Mr. Levin on whether Goldman should know what lawmakers and the Securities and Exchange Commission think of deals that Goldman is selling, and Mr. Levin reiterated his position that sophisticated players like Goldman should know what they are getting into without the government having to tell them.

Mr. Levin was also pressed on the S.E.C. case. He said it was not meant to fail, and in fact, that the case had already been a success, in that it conveyed “risk that investors wanted to have, and in a market that’s not a failure.”

To which Mr. Broderick, the chief risk officer, replied, “It’s like we’re speaking a different language here.”